The basic idea behind VAT is fairly straightforward – it’s a sales tax.
But for voluntary organisations, it’s not always straightforward working out whether what you do counts as a ‘sale’ in VAT terms. There are also a lot of exemptions and special conditions for charities that mean not everything can be worked out, sometimes you just need to look up the rules.
Then there are the practicalities of how you actually operate VAT processes.
This page should give you enough of an understanding so you to know what red flags to look out for, when to ask for advice and should point you in the direction of more detailed information. If in doubt, take advice sooner rather than later.
GOV.UK has a list of all the VAT rates and related VAT notices which can be quite useful as a quick reference.
There’s also a basic how-to guide which has some practical pointers.
Or you can contact their VAT enquries team 0300 200 3700 08.00-18.00, Mon-Fri
Whether you have to start charging VAT on your services depends on two things:
By default VAT is charged on a supply of goods or services in the course of a ‘business’ activity, but when HMRC is talking about business, that covers all kinds of non-commercial services too.
The idea of the supply is central – it’s an exchange: goods or services for something in return.
The biggest grey area is often around defining if something is a grant or a service contract. And there, your questions to ask are:
You can look for more advice on the Charity Tax Group’s website:
Quite a lot of supplies that voluntary organisations make have been specifically exempted from VAT.
Take advice if you think you are making exempt supplies, because there can be very precise rules that may catch you out – for example, vocational training is exempt if it is delivered by an eligible body and any profit is used to continue similar supplies.
The impact of exempt activities:
Examples of exempt supplies:
The Charity Tax Group has more information on how the exemptions on each of these work and latest updates
Any business supply that is not specifically exempted is referred to as a taxable supply, and once your income from taxable supplies exceeds the VAT Registration Threshold, you must register for VAT and charge VAT on these supplies at one of 3 rates:
The impact of taxable activities:
Examples of taxable supplies (and some issues):
Non-business activities in the voluntary sector are where something is given with no expectation of a return: a donor gives money without wanting a service or a service is delivered free or with minimal contribution from the beneficiary. This is often what the general public understand by charity.
Examples of non-business supplies.
If you have general queries about VAT you can webchat or call 0300 200 3700 08.00-18.00, Mon-Fri
You might register if your taxable supplies were below the threshold if you thought the benefit of the VAT you could recover on your purchases outweighed the cost of administering the VAT processes and the potential additional VAT burden on your users. It isn’t common, and you should take advice before you do that.
The WYCAS Good Practice Guide on VAT, and Sayer Vincent Made Simple Guide give more details and advice on registering for and calculating VAT.
General rules:
There are certain things where charities pay less VAT – but there are conditions attached so check out the details on the items listed.
You will have to provide your supplier with an eligibility declaration, and don’t expect them to know about these reliefs, you should arm yourself with the knowledge (they may well not be aware of the details if they haven’t come across it before).
The Charity Tax Group pages are useful.
Charities can pay 5% VAT on fuel and power for:
Once you are registered, you usually do a VAT return once every three months. The GOV.UK pages give a good outline of what is required.
Partial exemption happens when an organisation is registered for VAT but not all its supplies are taxable supplies – as is true for many VAT-registered voluntary organisations – and it can only recover a proportion of the input tax paid on its purchases.
The calculation is quite detailed and you should take advice on how best to approach it for your organisation. Your advisor will probably set up a spreadsheet to create the necessary calculations for your returns.
In your accounting you need to be able to identify for all purchases whether they relate to activities that are taxable, exempt, outside the scope, or are general costs that support a number of projects like utilities so that you can carry out the partial exemption calculation.
For chapter and verse see HMRC VAT Notice 706, or, both the WYCAS Good Practice Guide on VAT, and Sayer Vincent Made Simple Guide have reasonable explanations.
You need to be aware that there are specific rules for any cross-border supplies and the Charity Tax Group advice is useful for this.
Last reviewed: 19 July 2018
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